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Operations Strategy in a
Global Environment

PowerPoint presentation to accompany


Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl

2011 Pearson Education, Inc. publishing as Prentice Hall

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Global Reachability

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Global Strategies
Boeing sales and production are worldwide
Sony purchases components from
suppliers in Thailand, Malaysia, and around
the world
Volvo considered a Swedish company but
until recently was controlled by an American
company, Ford. The current Volvo S40 is
built in Belgium and shares its platform with
the Mazda 3 built in Japan and the Ford
Focus built in Europe.

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Global Strategies
Volvo considered a Swedish company
but until recently was controlled by an
American company, Ford. The current
Volvo S40 is built in Belgium and shares
its platform with the Mazda 3 built in
Japan and the Ford Focus built in Europe.

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Six Reasons to Globalize


Reasons to Globalize
Tangible 1. Reduce costs (labor, taxes, tariffs, etc.)
Reasons 2. Improve supply chain
3. Provide better goods and services
4. Understand markets
Intangible 5. Learn to improve operations
Reasons 6. Attract and retain global talent

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1. Reduce Costs
Foreign locations with lower wage
rates can lower direct and indirect
costs
Maquiladoras
World Trade Organization (WTO)
North American Free Trade
Agreement (NAFTA)
APEC, SEATO, MERCOSUR, CAFTA
European Union (EU)
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2. Improve the Supply Chain


Locating facilities closer to
unique resources
Auto design to California
Athletic shoe production to China
Perfume manufacturing in France

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3. Provide Better Goods


and Services
Objective and subjective
characteristics of goods and
services
On-time deliveries
Cultural variables
Improved customer service

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4. Understand Markets
Interacting with foreign customers
and suppliers can lead to new
opportunities

Extend the product life cycle


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5. Learn to Improve
Operations
Remain open to the free flow of
ideas
General Motors partnered with a
Japanese auto manufacturer to
learn new approaches to
production and inventory control
Equipment and layout have been
improved using Scandinavian
ergonomic competence
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6. Attract and Retain Global


Talent
Offer better employment
opportunities
Better growth opportunities and
insulation against unemployment
Relocate unneeded personnel to
more prosperous locations

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Cultural and Ethical Issues


Cultures can be quite different
Attitudes can be quite different
towards
Punctuality

Thievery

Lunch breaks

Bribery

Environment

Child labor

Intellectual
property
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Companies Want To Consider


National literacy rate
Rate of innovation

Work ethic
Tax rates

Rate of technology
change
Number of skilled
workers
Political stability

Inflation
Availability of raw
materials
Interest rates

Product liability laws


Export restrictions
Variations in language
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Population
Number of miles of
highway
Phone system
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Developing Missions and


Strategies
Mission statements tell an
organization where it is going
The Strategy tells the
organization how to get there

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Mission
Mission - where are
you going?
Organizations
purpose for being
Answers What do
we provide society?
Provides boundaries
and focus
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Factors Affecting Mission


Philosophy
and Values
Profitability
and Growth

Environment
Mission
Customers

Public Image
Benefit to
Society

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Sample Missions
Sample Company Mission
To manufacture and service an innovative, growing, and profitable
worldwide microwave communications business that exceeds our
customers expectations.

Sample Operations Management Mission


To produce products consistent with the companys mission as the
worldwide low-cost manufacturer.

Figure 2.3
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Strategic Process
Organizations
Mission

Functional
Area Missions

Marketing

Operations

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Finance/
Accounting
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Strategy
Action plan to
achieve mission
Functional areas
have strategies
Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses

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Strategies for

Competitive Advantage
A. Differentiation better, or at
least different
B. Cost leadership cheaper
C. Response rapid response

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A. Competing on
Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything
that impacts customers perception
of value
Safeskin gloves leading edge products
Walt Disney Magic Kingdom
experience differentiation
Hard Rock Cafe dining experience
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B. Competing on Cost
Provide the maximum value as
perceived by customer.
Does not imply low quality.
Southwest Airlines secondary
airports, no frills service, efficient
utilization of equipment
Wal-Mart small overhead, shrinkage,
distribution costs
Franz Colruyt no bags, low light, no
music, doors on freezers
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C. Competing on Response
Flexibility is matching market changes in
design innovation and volumes
A way of life at Hewlett-Packard

Reliability is meeting schedules


German machine industry

Timeliness is quickness
in design, production,
and delivery
Johnson Electric,
Pizza Hut, Motorola
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OMs Contribution to Strategy


10 Operations
Decisions
Product
Quality
Process
Location
Layout
Human
resource

Approach
DIFFERENTIATION
Innovative design
Broad product line
After-sales service
Experience
COST LEADERSHIP
Low overhead
Effective capacity
use
Inventory
management

Supply chain
Inventory
Scheduling

RESPONSE
Flexibility
Reliability
Quickness

Maintenance
2011 Pearson Education, Inc. publishing as Prentice Hall

Example

Competitive
Advantage

Safeskins innovative gloves


Fidelity Securitys mutual
funds
Caterpillars heavy equipment
service
Hard Rock Cafs dining
experience
Franz-Colruyts warehousetype stores

Differentiation
(better)

Southwest Airlines
aircraft utilization
Wal Marts sophisticated
distribution system
Hewlett-Packards response to
volatile world market
FedExs absolutely, positively,
on time
Pizza Huts 5-minute guarantee

Response
(faster)
Cost
leadership
(cheaper)

Figure 2.4

at lunchtime
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Managing
Global Service Operations
Requires a different perspective
on:
Capacity planning
Location planning
Facilities design and layout
Scheduling

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Process Design

Variety of Products

High

Moderate

Process-focused
JOB SHOPS
(Print shop, emergency
room, machine shop,
fine-dining
Repetitive (modular)
restaurant)
focus
ASSEMBLY LINE
(Cars, appliances,
TVs, fast-food
restaurants)

Mass Customization
Customization at high
Volume
(Dell Computers PC,
cafeteria)

Product focused
CONTINUOUS
(Steel, beer, paper,
bread, institutional
kitchen)

Low
Low
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Moderate
Volume

High
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Issues In Operations Strategy


Resources view
Value Chain analysis
Porters Five Forces model
Operating in a system with many
external factors
Constant change

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Product Life Cycle


Company Strategy/Issues

Introduction

Growth

Maturity

Decline

Best period to
increase market
share

Practical to change
price or quality
image

Poor time to
change image,
price, or quality

R&D engineering is
critical

Strengthen niche

Competitive costs
become critical
Defend market
position
Drive-through

Internet search engines


iPods
Xbox 360
Sales

Cost control
critical

restaurants
CD-ROMs

LCD &
plasma TVs

Avatars
Boeing 787
Twitter

Analog
TVs
Figure 2.5

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Product Life Cycle


OM Strategy/Issues

Introduction
Product design
and development
critical
Frequent
product and
process design
changes
Short production
runs
High production
costs
Limited models
Attention to
quality

Growth
Forecasting
critical
Product and
process
reliability
Competitive
product
improvements
and options

Maturity
Standardization
Fewer product
changes, more
minor changes
Optimum
capacity
Increasing
stability of
process

Increase capacity Long production


Shift toward
runs
product focus
Product
Enhance
distribution

Decline
Little product
differentiation
Cost
minimization
Overcapacity
in the
industry
Prune line to
eliminate
items not
returning
good margin

improvement and Reduce


capacity
cost cutting

Figure 2.5
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SWOT Analysis
Mission
Internal
Strengths

External
Opportunities
Analysis

Internal
Weaknesses

External
Threats
Strategy

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Strategy Development Process


Analyze the Environment
Identify the strengths, weaknesses, opportunities, and threats.
Understand the environment, customers, industry, and competitors.

Determine the Corporate Mission


State the reason for the firms existence and identify the
value it wishes to create.

Form a Strategy
Build a competitive advantage, such as low price, design, or
volume flexibility, quality, quick delivery, dependability, aftersale service, broad product lines.
Figure 2.6
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Strategy Development and


Implementation
Identify key success factors
Build and staff the organization
Integrate OM with other activities
The operations managers job is to implement
an OM strategy, provide competitive
advantage, and increase productivity
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Key Success Factors


Support a Core Competence and Implement Strategy by
Identifying and Executing the Key Success Factors in the Functional Areas

Marketing
Service
Distribution
Promotion
Channels of distribution
Product positioning
(image, functions)

Finance/Accounting
Leverage
Cost of capital
Working capital
Receivables
Payables
Financial control
Lines of credit

Decisions
Product
Quality
Process
Location
Layout
Human resource
Supply chain
Inventory
Schedule
Maintenance

Production/Operations

Sample Options
Customized, or standardized
Define customer expectations and how to achieve them
Facility size, technology, capacity
Near supplier or near customer
Work cells or assembly line
Specialized or enriched jobs
Single or multiple suppliers
When to reorder, how much to keep on hand
Stable or fluctuating production rate
Repair as required or preventive maintenance

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Chapter
5
6, S6
7, S7
8
9
10
11, S11
12, 14, 16
13, 15
17

Figure 2.7

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Cost Reduction Considerations

High

Four International
Operations Strategies
Global Strategy

Transnational Strategy

Standardized product
Economies of scale
Cross-cultural learning

Move material, people, ideas


across national boundaries
Economies of scale
Cross-cultural learning

Examples:
Texas Instruments
Caterpillar
Otis Elevator

Examples
Coca-Cola
Nestl

Import/export or
license existing
product

Multidomestic Strategy
Use existing
domestic model globally
Franchise, joint ventures,
subsidiaries

Examples
U.S. Steel
Harley Davidson

Examples
Heinz
The Body Shop
McDonalds Hard Rock Cafe

International Strategy

Figure 2.9

Low
Low

High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)

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